The Dawn of the Digital Age

Transcription

1 The Dawn of the Digital Age Scott Burns, Head of Product Solutions, Morningstar Inc Morningstar, Inc. All rights reserved.

2 Important Information Any Morningstar ratings/recommendations contained in this presentation are based on the full research report available from Morningstar or your adviser. Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. No part of this document may be reproduced or distributed in any form without the prior written consent of Morningstar. Any general advice or class service have been prepared by Morningstar Australasia Pty Ltd (ABN: , AFSL: ) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement (Australian products) or Investment Statement (New Zealand products) before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN ("ASXO"). 2

3 Live Poll When I hear Digital Advice I think: 1. Sounds like a great way to scale my business 2. All hype; This is never going to replace the human advice experience 3. I like the idea, but the execution so far is lacking 4. All hail our new robot overlords!

4 Live Poll - Results When I hear Digital Advice I think:

5 A Critical Turning Point Advancements in technology, the push to simplify and reduce fees, and growing demand to scale smaller investor accounts are driving rapid change in the financial industry and are driving an unprecedented level of innovation. 5

6 Fintech, Digital/Robo/Automated Advice, Artificial Intelligence, Big Data. Leaves many of us feeling like Dorothy lions and tigers and bears oh my! 6

7 Let s Start with Digital Advice Before we start digitizing advice, let s make sure that we all understand what advice means 7

8 The Robo Advice Landscape 8

9 Segmenting the Current Players -- Australia B2B2C Omni-Channel B2C Branded White Label / API 9

10 Mapping the current players -- U.S. B2B2C Record keeper/plan Sponsor B2C B2B2C Advisor (1) Branded White Label (1) Represent firms that sell products which have both an advisor facing and consumer facing UX. As such, Morningstar Managed Portfolios and related competitors, which do not offer a consumer facing UX are not included in this graphic. 10

11 Hype vs. Reality Silicon Valley is not tearing down Wall Street** 45 Latest Filing AUM (Billions) AUM in Billions Best Case Break Even Line Fees in Basis Points Vanguard Charles Schwab * Betterment Wealthfront Personal Capital Future Advisor 10 0 *Schwab requires some assets to be held in their bank ** Though Vanguard might! 11

12 Build, Buy or Partner Vertically Integrated Asset Managers Charles Schwab Fidelity JP Morgan UBS Wells Fargo Pure Play Asset Managers Blackrock Capital Group Franklin Templeton Invesco Legg Mason PIMCO State Street Global Advisors T. Rowe Price Vanguard Advisors Ameriprise Edward Jones LPL Merrill Lynch Morgan Stanley 12 Primerica Raymond James In House Purchased Partnership Robo Offering Offering has been launched or another firm has been purchased. Plans to develop robo advisor. No concrete evidence of robo investment.

13 Delivering Automated Advice 13

14 Delivering Digital Advice More than Just a Fancy Website A range of capabilities are required Client Portal Client Communication Account Opening Account Aggregation Portfolio Analysis Risk Assessment Goal Modeling Budgeting Saving for key purchases Debt-Management Model Based Solutions Glide Paths 14 Personalized Investments Solutions Back-office/ Execution Performance Reporting Rebalancing Personalized Education

15 That said.an appealing, non-threatening front-end is essential 15

16 Major Point of Friction Automated Data Aggregation It is impossible to truly automate advice without automated data collection We believe that the customer ultimately owns their data Kunal Kapoor, CEO Morningstar Inc. 16

17 With that Data, We Can Do Amazing Things to Change Investor Outcomes For Example, moving from Risk Tolerance to a Risk Profile Risk Profile Investment Attitudes Risk Capacity Total Wealth Time Horizon Risk Tolerance Liquid Illiquid Current Spending Future Spending Investing Experience Risk Preference Saving Preference Financial Capital Housing Capital Pension Capital Human Capital Income Expenses Goals Priorities 17

18 Human Advisors, Aided by Digital Advice is the Winner Client Discount Brokerage Robo-Advisor Cyborg-Advisor DIY Trader & DIY Longterm Investor Full-Service Wealth Manager Mass Affluent Mass Affluent High-Net-Worth & Ultra HNW Service Low Cost Trade Execution Trading Tools Investment Information Low Cost Asset Allocation Low Cost Asset Allocation Electronic Communication Basic Financial Plan Personalized Asset Allocation Human Relationship Holistic Goal & Financial Planning Product Access (IPOs, Alternatives) Loans Insurance Tax Optimization Investment Alpha Source: Morningstar. For Illustrative Purposes Only. 18 For Financial Professional Use Only. Not for Public Distribution

19 Regulatory Concerns Will be the #1 Driver of Digital Advice Adoption by Platforms 19 From the 14:56 mark -- stop at 16:22

20 FinTech Hub-Bub 20

21 More than Just Robo Advice Broad Themes, Trends, and Technologies Impacting Investors Regulation Consumer Expectations User Engagement Trends g Engaging millennials g Going global, going mobile g Sustainable investing g Great wealth transfer g Automated wealth management g Holistic financial perspective g Active vs. Passive g Gamification g Quantimental investing g Multi-goal assessment g Strategic beta g Business intelligence g Behavioral investing g Underbanked and financial literacy g Social sentiment and crowdsourcing g DOL Fiduciary Ruling and Dodd-Frank g Fee compression g Conversational UI Advanced Technologies gartificial intelligence gcognitive computing ginternet of things gblockchain gcomponentization gaugmented/virtual Reality 21

22 Fin Tech is a Customer Engagement Play, Not a Finance Play Regulation Consumer Expectations User Engagement Trends g Engaging millennials g Going global, going mobile g Sustainable investing g Great wealth transfer g Automated wealth management g Holistic financial perspective g Active vs. Passive g Gamification g Quantimental investing g Multi-goal assessment g Strategic beta g Business intelligence g Behavioral investing g Marketing Technology g Underbanked and financial literacy g Social sentiment and crowdsourcing g Fee compression g Conversational UI Advanced Technologies gartificial intelligence gcognitive computing ginternet of things gblockchain gcomponentization gaugmented/virtual Reality

23 FinTech Ecosystem Contributors FinTech Startups Incubators and Accelerators Conferences, Events and Meetups Bank/Asset Manager Innovation Labs FinTech Consultants Service Providers data, cloud, infrastructur e Venture Capital Universities

24 Morningstar: The Proverbial FinTech Candy Store -- Advisor Solutions

25 Retail Investor Solutions 25

26 Other Tech 26

27 Big Data.How About Just Figuring out Medium Data

28 What Morningstar is Doing with Big Advisor Data You are looking at 6000 advisors and 2 million accounts from a single platform!

29 Artificial Intelligence Less about the Decisions More About Reading and Interpreting Unstructured Data

30 Augmented Reality Forget the Mobile, the Next Frontier of Customer Engagement is Voice Technology Powered by A.I.